Will the Economy Suffer From Reduced Unemployment Benefits?

On November 27, JPMogan Chase (NYSE:JPM) released a notice of Global Data Watch’s findings on the impending end to extended unemployment benefits. And the findings are less then optimistic, with the research notice stating that “expiration of these benefits could lower labor force participation. This, in turn, would depress the unemployment rate, by perhaps 0.25 percent to 0.50 percent pt.”

The funding currently fueling the Emergency Unemployment Compensation program — the EUC — will run out on January 1. At present, the report says that EUC is supplying unemployment benefits for around 1.3 million individuals. While this is not the first time the funding has run dry, it is the first time it looks so likely to go without refunding from congress.

The report notes that unemployed individuals are more likely to remain in search of a job rather than leave the market if they are receiving benefits for continuing their search. They are also more likely to look for a higher paying job, as opposed to settling for a low wage out of desperation. Further, spending that would otherwise not occur from unemployed individuals could cease along with the benefits — meaning that the resultant economic benefit from consumers would also end.